Procurement - The similarities of poor resultant quality in Low-Cost Houses (Cape Town) There

Chapter 5: Data Presentation and Analysis

1. INTRODUCTION 1 Background

2.1 Introduction

2.2.6 The similarities of poor resultant quality in Low-Cost Houses (Cape Town) There is a great distinction when it comes to the comparison of the resultant product. This

2.2.4.3 Procurement

There are several forms of procurement systems in practice in the construction industry.

Fotwe & McCaffer (2007) said they are separated and co-operative arrangements, management-orientated procurement systems, integrated arrangements and discretionary systems. To mention few of procurement systems is traditional, design and build, management procurement, design and manage procurement. The procurement systems have advantages and disadvantages. Turner (2000:16) suggests that the National Economic Development Office (NEDO) guide identified six steps to a successful building procurement as follows:

25 (i) Selecting an internal executive

As anticipated research has confirmed that companies that build frequently have people with developed project management skills, these are people employed inside the company. In this context, at the inception of the probable project, requires the project management skills of experience of the total process of planning, designing and constructing building inclusive of experience of authority within client‟s organization (Turner, 2000:17). Furthermore, the skills needed exceed those of managing a construction project on site and start before any decision has been taken and actual construction has been undergone. For a project of any size and/or complexity the internal project management should:

 Be available fulltime.

 Be the single point of contact for the company.

 Understand and organize the internal decision-making process required for the project.

 Have the power to speak and act for the company.

(ii) Appointment of Principal Agent

Turner (2000:17) said the capital investment in a building will not usually be decided without board approval and all the skills of reporting, communicating and obtaining timely decisions will be imperative for the successful procurement. In addition Turner (2000:18) said building procurement can be very complicated and stressful for an inexperienced client and even for the experienced client will still find the procurement process very complex.

To deal with this complication and stress the company in the building industry appoints a principal agent-consultants like Architects, Quantity surveyors, Engineers, Project managers or Contracting companies with design and construction skills in addition to a construction record (Turner, 2000:18).

(iii) Care in deciding the client’s requirement

The client must know what he wants first; this is the most important stage of the project as it assists designers to proceed with their work knowing exactly what is expected of them to design (Turner, 2000:19). This will eventually assist in deciding the procurement system to be used in the project and in measuring time-frames of the project, project cost, materials needed, type of plants needed and workmanship required.

26 (iv) Timing the project realistically

Turner (2000:20) said the entire attitude to time and to the programme required for the design and construction of buildings has significantly changed in the past two decades. In simple terms, this has been responding to a general speeding up in economic activity, to the effects of international competition on commercial and industry, to the instability and change of markets that require a facility to come on stream quickly. Turner (2000:20) further said producing an excellent facility for a product, with everything in the facility that could probably be needed, but a year or so after the product can be sold is obviously bad procurement.

(v) Selecting the procurement path

The research that was carried out for NEDO concluding in the Faster Building for Industry (FBFI) report, led to conclusions on how to use the construction industry, which procurement path was applicable and under which circumstances (Turner, 2000:20). In addition, Turner (2000:20) highlighted the key to procurement by identifying priorities in the objectives of the client and plans a path, a procurement route that will be the most appropriate. It is important and emphasized that priorities must be put into order of precedence, each in order before others, because by definition there can be only one priority. Here, the principal agent‟s role is of importance to select the appropriate procurement path.

(vi) Choosing the company(ies) to work for the client

The fundamental reason for employing a company to assist the client construct a building is due to the fact that it is less expensive to provide a service than the client can provide (Turner, 2000:20). The client is responsible for monitoring and controlling any risk that may possibly decrease workload or productivity. Selecting companies to work for the client is critical to successful procurement and is difficult, in outlining how to select the company, to avoid what may appear to be trite statement. The following are critical:

 Recognition of the lack of skill is fundamental - obtaining it is the key.

 Recognition of vested interests - people and company‟s naturally wish to sell their services.

 Responsibility for any action stays with the person who has it until he specifically delegates it - if it important, delegation should be in writing.

 Mutual trust is essential – speed of operation can then be flow, quality and value can be achieved.

 Construction contracts seem to become longer in their written conditions, on more and more occasions. Harshness, penalties and litigation have increased and certainly this will eventually increase the involvement of lawyers.

 Price competition is important and is here to stay as the backcloth for both contractors and consultants – but is not necessarily the main selection criteria.

 The most crucial appointment is the principal agent – obtain him by:

 Comparing several firms.

 Seeing the person responsible for day-to-day activities.

 Checking references and track record.

 Accepting his qualities and the relationship of trust with the client must be right. The principal agent must rapidly become an extension of client‟s organization.

 There should be a correlation between the price of services and the quality of work produced.

 Judging the impartiality and integrity the principal agent has.

2.2.4.3.1 Traditional procurement

In a traditional procurement, quality assurance relies upon the individual contribution to implementation from each designer, contractor, supplier and sub-contractor (Griffith, 1990).

The traditional procurement seems to have a correlation with one of quality assurance systems ISO 9000 and 9001 for the involvement of every stakeholder in the complete introduction of the system and making sure of its success. The traditional procurement has been in practice for centuries with the function of design being provided direct to the client, linked quite often with a role for the designer that may have appeared to be one of management of the construction process (Turner, 2000:48). Practically, the management of construction by the designer is not the designer‟s role under traditional procurement. Turner (2000:48) said the client appoints the consultants for design and for cost control; therefore, once the design is complete the contractor is appointed to carry out the construction work.

The traditional procurement has the following components (Turner, 2000:48-50):

 Establishment of the need to build.

 Establishment of client‟s requirements.

 Appointment of the design team.

 Developing the design and cost control.

 Acceptance of design for the scheme by the client.

 Preparation of tender documentation.

 Selecting and inviting tenderers to bid.

 Appraisal and acceptance of a tender which then becomes a contract.

 Commencement of construction works.

2.2.4.3.1 (i) Advantages of traditional procurement

Some of the advantages of traditional procurement approach are:

 Contractors and consultants are familiar with traditional procurement and the roles and responsibilities are well understood.

 The client retains responsibility for and control of design team.

 The design team report directly to the client to ensure that quality control is maintained.

 The client appoints an independent professional in the role of contract administrator monitoring the project.

 There is price certainty.

 The basis for variations to be priced at tender rates is provided by a priced Bills of Quantities.

 All prices are based on the same information

2.2.4.3.1 (ii) Disadvantages of traditional procurement

 To be effective, it requires the scheme to be more or less fully designed before tenders are sought - this often results in an extended pre-tender period.

 The fragmented design and construction procedures and responsibility can lead to disputes.

 There is potential for overdesign.

 Since the contractor is not involved in the design process so is not required to „buy in‟

to the design.

 The client retains responsibility for the design team performance.

 A fixed lump sum is rarely actually achievable.

 The use of provisional sums and the power of the architect or engineer is to issue instructions for additional or varied works can lead to price escalation.

2.2.4.3.2 Design and Build procurement

Design and build may appear as new to people today. However, is not new in the industry.

Previously before Architecture and design separated from the building process the architect and contractor used to supply buildings for the client together (Turner, 2000:45). In a design and build procurement the client approaches the contractor directly without the architect.

This is unlike in the traditional procurement where the contractor is excluded from the design stage (Ashworth & Hogg, 2002). Furthermore, Turner (2000:45) added that in design and procurement one organization is responsible to the client for both design and construction.

Organizations currently supplying the procurement option of buying a finished building are most generally building contractors. Turner (2000:45) identified the following as the components of design and build procurement:

 Establishment of a need to build.

 Establishment of the client‟s requirements.

 Selecting and inviting tenderers to bid.

 The contractor(s) preparing proposals for design, time and cost.

 Appraisal and acceptance of a tender which then becomes a contract.

 Commencement of construction works.

2.2.4.3.2 (i) Advantages of design and build procurement

 In design and build the speed of delivery from conception to completion is faster than in the traditional procurement. Usually, the design and build procurement approach allows programmes and budgets to be more easily met and the speed of construction is also often quicker.

 The contractor is taking responsibility of the design and construction. Thus, the client has the single point of responsibility.

 Since the contractor is responsible for the design and the construction of the building, the contractor and the contractor‟s supply chain are involved in the production of design to be used, and hence buy in to that design.

 There is usually the facility for the client‟s own designers to be notated to the contractor.

2.2.4.3.2 (ii) Disadvantages of design and build procurement

 The initial price may be higher as the contractor may build into his price a risk premium.

 Post-contract variations can be more expensive, and it is often more difficult to monitor the additional charges raised.

 The client has less control and over design matters.

 Since it is often perceived that the contractor is driven by price rather than by design standards. It is often considered that the design and build procurement approach is not the appropriate approach to use where a high quality design is required, unless a robust specification is included within the client‟s requirements.

2.2.4.3.3 Management procurement

The management procurement has been in practice dating back in 1970‟s. However, the majority of clients, consultants and contractors either have no or little experience of the procurement (Turner, 2000:52). It is very important that the elements of management should have become separated as design and construction were already separated. Turner (2000:52) suggests that the separation likely came about because the general perception of the construction process, and general reports on the building industry were that the industry is managed badly. In management procurement a client usually seeks the advice and expertise of the contractor concerning the procurement, hence appointing contractor at a very early stages of the project (Sawczuk, 1996). The project undertaken with the use of management procurement is generally completed in a shorter time than traditional procurement projects (Turner, 2000:53) and further identified the following as components of management procurement:

 Establishment of the need to build.

 Establishment of the client‟s requirements.

 Appointment of design team possible in advance, simultaneously or after a construction company is appointed.

 Selection and appointment of Management Company.

 Development of programme and design requirements simultaneously.

 The actual construction is carried out by contractors in competition, the management contractor or construction manager does not usually do the actual construction, however, can provide services like, safety and welfare facilities and site management personnel.

 Tendering, evaluation and appointment of maybe sixty to hundred work contractors.

 Commencement of construction works.

2.2.4.3.3 (i) Advantages of management procurement

 Management procurement is particularly beneficial for fast-track complex projects where minimal design information is available at the start of the project.

 Management procurement allows for early „build-ability‟ and programming input from the management contractor acting as a consultant.

 There is a single point contractually and payment arrangement for the client with the management contractor.

 The preliminaries and management fee can be fixed, therefore allowing for a degree of certainty on price.

 The quality can be controlled by the design team.

 There is great scope for client changes.

2.2.4.3.3 (ii) Disadvantages of management procurement

 Management procurement is a low risk strategy for the management contractor as the contractor has little responsibility for package contractor defaults and bankruptcy.

 Although guaranteed maximum price can be achieved, the process is still fundamentally prime cost in its nature, which is an approach that contractors naturally prefer.

 Cost increase can be substantial, and there is often a tendency for the initial cost plan to be adjusted upwards.

2.2.4.3.4 Design and Manage procurement

As the name suggests, the design and manage procurement is a combination of some characteristics design and build procurement and management procurement. In design and manage procurement a single firm is appointed, after a selection process that perhaps includes some degree of completion on price. However, price should not be the main selection criteria (Turner, 2000:57). The design and manage procurement have the following components:

 Establishment of the need to build.

 Establishment of the client‟s requirements.

 Selection and invitation of tenderers to bid.

 The contractors preparing their proposals for management, design, time and cost.

 Evaluation and acceptance of a tender which becomes a contract.

 Management, design and commencement of construction works.

2.2.4.3.4 (i) Advantages of design and manage procurement

 The contractor normally owns the project until it is complete, and thus it has the financial motivation to complete the project as quick and efficiently as possible.

 There is enough time for the client to seek financing and investors before the contractor is required to pay for a completed project.

 An inexperienced client does not need to make difficult construction decisions, as those decisions are left entirely in the hands of the contractor.

2.2.4.3.4 (ii) Disadvantages of design and manage procurement

 The lack of control the client maintains over design and construction decisions, which may mean that the project is not perfectly suited to their needs once it is complete.

 In the case where a developer or a contractor has some financial long-term interest in the project, this may encourage the contractor to make construction decisions based on the long-term needs of the project, rather than just the short-term decisions needed to get the project completed.

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